Foreign partnership receives late section 754 election relief

Plain-English summary

A foreign entity classified as a partnership for U.S. federal tax purposes failed to file an intended IRC § 754 election after ownership interests were transferred. It nevertheless adjusted partnership property basis as though the election were in effect and did not take an inconsistent position. The partnership represented that it acted reasonably and in good faith, was not using hindsight, and that relief would not prejudice the government. The IRS granted 120 days to make the election effective for the affected year and later years under Treas. Reg. § 301.9100-3. The ruling did not decide whether the entity was substantively a partnership for federal tax purposes.

Ruling snapshot

• Question: Should the foreign partnership receive additional time to make a section 754 election after applying the related basis adjustments consistently?
• Outcome: Approved, with 120 days from the ruling date to file
• Key authorities: IRC §§ 743 and 754; Treas. Reg. §§ 1.754-1(b)(1), 1.6031(a)-1(b)(5), and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201630013
Third Party Communication: None
Release Date: 7/22/2016
Date of Communication: Not Applicable
Index Number: 9100.15-00
Person To Contact:
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-------------------, ID No. -----------------
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Telephone Number:
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Refer Reply To:
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CC:PSI:03
PLR-135647-15
Date:
April 22, 2016

X = ----------------------------
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Country = ---------------
D1 = ----------------------

Dear -----------------:

This responds to a letter dated October 26, 2015, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election under § 754 of the Internal Revenue Code (Code).

FACTS

The information submitted states that X was an entity formed under the laws of Country and was classified as a partnership for US federal income tax purposes for its taxable year ending D1. Interests in X were transferred during the taxable year ending on D1. X intended to file an election under § 754 for that year, but failed to do so. X, however, adjusted the basis of partnership property as if there were a § 754 election in effect and did not take any position inconsistent with such an election.

X represents that it has acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that it is not using hindsight in making the election.

LAW

Section 754 provides, in part, that if a partnership files an election, in accordance

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with the regulations prescribed by the Secretary, the basis of the partnership property is adjusted, in the case of a transfer of a partnership interest, in the manner provided in
§ 743. Such an election shall apply with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable year with respect to which the election was filed and all subsequent taxable years.

Section 1.754-1(b)(1) of the Income Tax Regulations provides, in part, that an election under § 754 to adjust the basis of partnership property under 743(b) with respect to a transfer of an interest in a partnership, shall be made in a written statement filed with the partnership return for the taxable year during which the transfer occurs. For the election to be valid, the return must be filed not later than the time prescribed by § 1.6031-1(e) (including extensions thereof) for filing the return for the taxable year.

Section 1.6031(a)-1(b)(5) provides that, for a partnership not otherwise required to file a partnership return, if an election that only the partnership may make is required to be made by or for the partnership, a return on the form prescribed for the partnership return must be filed for the partnership.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as an election whose due date is prescribed by a regulation published in the Federal Register or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make the election. Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) the grant of relief will not prejudice the interests of the government.

CONCLUSION

Based solely on the information submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, X is granted an extension of time of 120 days from the date of this letter to make an election under § 754 effective for its taxable year ending on D1 and thereafter. A copy of this letter should be attached to the election.

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Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Internal Revenue Code and the regulations thereunder. Specifically, we express or imply no opinion as to whether X is a partnership for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

This ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office that not verified any of the material submitted in support of the ruling request, it is subject to verification on examination.

In accordance with the power of attorney on file with this office, we are sending a copy of this letter to X's authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

By: ___
Holly Porter
Chief, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2):
Copy of this letter
Copy for § 6110 purposes

cc: